The Japanese government and the central bank thought that if they lowered the value of their currency, they would increase their exports and grow the economy The thinking was that a weaker currency would make Japanese products cheaper for foreign buyers and would make foreign products more expensive for Japanese buyers

Japan's export economy had been the engine of its economic growth for much of its postwar history In the 1980s, however, Japan's export industries began to face increased competition from foreign producers To increase its exports, Japan needed to lower the value of its currency compared with the currencies of its trading partners

Japan's export-led growth strategy had been successful in the past, but the country had grown in step with the rest of the world By the 1980s, Japan had the second-largest economy in the world, but it was still only about half the size of the U S economy

The Japanese government had been urging the Bank of Japan to lower the value of the Japanese yen through expansionary monetary policy since the mid-1980s, but the bank had resisted doing so The bank knew that if it lowered the yen's value, it would have to raise interest rates, and higher interest rates would reduce the amount of investment in Japan's economy and slow economic growth

The bank finally relented and lowered the yen's value after U Treasury Secretary James Baker publicly criticized Japan for not intervening in currency markets and for not lowering the value of its currency The Bank of Japan's decision to lower the value of the yen sent shock waves through the global economy

Global Economic Crisis: How It Happened and Why It's Ruining the Global Economy

WHY DID JAPAN'S MONETARY POLICY CAUSE A CRISIS?

Japan's expansionary monetary policy led to a series of speculative attacks on the Japanese yen Speculators sold Japanese yen, which drove its value down, and bought dollars, which drove the dollar's value up This caused the dollar to rise in value relative to other currencies

A strong dollar made U exports more expensive and imports cheaper for U consumers, which put pressure on U companies to cut costs and reduce their profit margins

The strong dollar also made U companies less competitive in the global market

During the Great Depression for every ones hundred jobs lost ten immigration jobs were lost.

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